UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995 Commission File number 1-5985
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NEWCOR, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
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(State of incorporation) (I.R.S. Employer Identification No.)
1825 S. Woodward Ave., Suite 240
Bloomfield Hills, MI 48302 (810) 253-2400
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(Address of principal executive office) (Registrant's telephone number)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of exchange on which registered
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Common stock, $1 par value NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to the Form 10-K. ( )
The aggregate market value of the voting common stock held by non-
affiliates of the registrant was $33,555,000 as of January 18, 1996.
The number of shares of common stock, $1 par value, outstanding as of
January 18, 1996 was 4,679,597.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Newcor, Inc. Annual Report to
Shareholders for the year ended October 31, 1995 Part I, II and IV
Portions of the Newcor, Inc. 1996 Proxy Statement Part III
Part I
Item 1. Business
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GENERAL DESCRIPTION OF BUSINESS:
Newcor, Inc., a Delaware corporation with its executive offices located in
Bloomfield Hills, Michigan, (together with its wholly-owned subsidiaries
referred to as the " Company" or " Newcor") was organized in 1969 to
succeed a Michigan corporation organized in 1933. The Company classifies
its activities into two industry segments: Precision Parts and Special
Machines. The Precision Parts segment consists of automotive components
and farm equipment parts machined in dedicated manufacturing cells, molded
rubber and plastic parts, and non-symmetrical machine contoured parts
produced and sold in small quantities. Special machines consist of a range
of standard individual machines, as well as custom designed machines on a
made-to-order basis and sold either individually or incorporated into
complete systems.
Subsequent to year-end, in December 1995, Newcor signed three separate
definitive agreements to purchase the assets of three unrelated companies
in the molded rubber and plastic component parts industry. Each company
primarily manufactures parts for the automotive industry. Two of the
acquisitions were finalized in January 1996 and the third is expected to be
completed in February 1996. In February 1994, Newcor purchased Blackhawk
Engineering,located in Cedar Falls, Iowa, whose principal line of business
is production machining gray iron, nodular iron and steel foundry castings
and its principal customer is John Deere. During 1993, the manufacturing
facility in Rochester, Michigan was closed as the primary part being
manufactured at the facility was phased out by the customer. Annual sales
at this plant had been in the $3-$5 million range.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS:
Financial information about industry segments is presented in Note I -
Segment Reporting of the Notes to Consolidated Statements in Newcor's 1995
Annual Report to Shareholders. This information is hereby incorporated by
reference.
NARRATIVE DESCRIPTION OF BUSINESS:
Precision Parts Industry Segment:
During 1995, the Precision Parts segment accounted for 51% of consolidated
total revenue. This segment consisted of four divisions at October 31,
1995: Midwest Rubber, Blackhawk, Rochester Gear and Eonic. In addition,
the three rubber and plastic component parts companies mentioned above will
be included in this segment.
Midwest Rubber's product line includes form dipped, slush cast, rotational
molded, and foam molded rubber and plastic parts. These products are used
in a wide range of applications including gear shift boots in trucks and
cars, coatings on various metal parts, and an inflatable cushion for the
health care industry. Blackhawk's principal line of business is machining
large gray iron, nodular iron and steel foundry castings. Rochester Gear
produces high-quality shafts, axles, transmission parts and other machined
components. Eonic produces precision cams, camshafts and other contoured
parts.
In 1995, approximately 50% of the Precision Parts segment revenue came from
sales to the automotive market (OEMs and Tier 1 Suppliers), with sales to
Ford Motor Company accounting for 64% of these automotive sales (or almost
17% of consolidated revenue). In addition, 22% of the segment's revenue is
derived from sales to John Deere and Company (this represents 11% of
consolidated revenue). The remaining 28% of Precision Parts revenue comes
from a wide variety of markets including health care, defense, food
processing, office equipment and others.
Each of the divisions in the Precision Parts segment has several
competitors, primarily all domestic. Orders are almost exclusively
obtained through competitive bidding, based on price, quality and delivery
capabilities. Each division has established itself as a reliable, high-
quality, low-cost manufacturer in its marketplace.
Almost all of this segment's revenue comes from domestic sales through
either the Company's sales staff or independent manufacturers'
representatives.
Most raw materials, supplies and other components are purchased from a
number of suppliers. Occasionally, a division will depend upon a single
supplier for a particular item when instructed to do so by the customer.
Newcor has not experienced any difficulty obtaining necessary purchased
materials.
Throughout its product lines, Newcor has various patents and trademarks
which have been obtained over a number of years and expire at various
times. While Newcor considers each of them to be important to its
business, the loss of any patent or trademark would not materially affect
the sales and profitability of the Company.
The Precision Parts segment is considered seasonal, varying primarily with
the automotive industry's annual shutdowns in July and December.
There are no unusual working capital requirements within Newcor's Precision
Parts divisions or the industries in which they operate.
Newcor's Precision Parts divisions primarily operate under long-term
blanket purchase orders with their customers. Specific releases against
these blanket purchase orders are made on a daily basis by the customer.
Accordingly, order backlog is not considered meaningful to this segment.
To arrive at consolidated backlog, backlog for this segment is considered
to be the anticipated releases during the upcoming three months.
None of Newcor's revenue comes from government contracts.
Special Machines Industry Segment:
During 1995, the Special Machines segment accounted for 49% of consolidated
total revenue. This segment consists of three divisions at October 31,
1995: Wilson Automation (Wilson), Newcor Bay City (Bay City) and Newcor
Machine Tool (NMT). Wilson manufactures automated assembly systems
incorporating materials handling, automated loaders, robotics and computer
integration. They also provide special automation equipment for assembly
and testing. Bay City produces innovative manufacturing systems,
particularly systems involving welding. Their expertise includes eight
different welding technologies. NMT's primary product is new and rebuilt
metalcutting tools, including CNC lathes, two and four axis turning
machines and dial, shuttle and transfer machines.
In 1995, over 80% of the Special Machines segment revenue came from sales
to the automotive market (OEMs and Tier 1 Suppliers), with sales to Ford
Motor Company accounting for 55% of these automotive sales (or 22% of total
consolidated revenue). The remaining 20% of Special Machines revenue comes
from a variety of markets including small engines, appliance, consumer
goods, aerospace and others.
The market for special machines has become more competitive during the past
few years due to two primary factors. First, the bidding process has
centered on price; quality and delivery are considered mandatory. Second,
more European manufacturers have entered the U.S. marketplace. The level
of competition varies widely depending upon the industry in which the
potential customer operates, the size of the order and the technical
complexity involved in fulfilling the specific order requirements. Orders
are almost exclusively obtained through competitive bidding, with the
principal competitive factors outside of price being product design and
performance, production and engineering capabilities, delivery and service.
Newcor attempts to differentiate itself by providing timely, innovative
solutions to its customers' requirements.
The products of this segment are marketed primarily in the major industrial
areas of the United States, Mexico and Canada by direct sales to its
customers. Most of the segment's sales are generated by sales engineers,
with some sales coming from independent manufacturers' representatives.
Competitive quotes are obtained for most components, raw materials and
supplies from a number of suppliers. Occasionally, a division will depend
upon a single supplier for a particular item when instructed to do so by
the customer. Newcor has not experienced any difficulty obtaining
necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks
which have been obtained over a number of years and expire at various
times. While Newcor considers each of them to be important to its
business, the loss of any patent or trademark would not materially affect
the sales and profitability of the Company.
The Special Machines segment is not considered seasonal.
Due to the nature of the Special Machines industry, this segment's working
capital can fluctuate significantly based on the stage of contracts in
process.
As of October 31, 1995, the Special Machines segment backlog was $30.7
million compared to $38.7 million at October 31, 1994. All of the October
31, 1995 backlog is expected to be completed during fiscal 1996.
None of Newcor's revenue comes from government contracts.
Product Engineering and Development:
Newcor's Special Machines segment primarily designs, develops and refines
its products internally through its own engineering departments within each
division. However, at times the Special Machines segment may purchase
certain designs or portions of product design from engineering
subcontractors. Costs associated with product engineering and development
were approximately $8.7 million in 1995, $11.1 million in 1994 and $9.9
million in 1993.
Environmental Compliance:
Compliance by the Company with federal, state and local laws and
regulations pertaining to the discharge of material into the environment
has not and is not anticipated to have any material effect upon the capital
expenditures, earnings or competitive position of the Company in conducting
its business.
One of Newcor's Special Machines divisions has been identified by the
Environmental Protection Agency as a potentially responsible party at a
waste disposal site. The division's waste and proportionate share were
minimal. Accordingly, management believes that any potential cost incurred
by Newcor will not have a material effect on the Company's results of
operations, liquidity or financial position.
Employees:
As of October 31, 1995, the Company had 888 employees.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND SALES:
The Company has no foreign operations and does not segregate its revenue by
geographic area due to the nature of its products. Export sales,
principally to Mexico and Canada, accounted for 10% of consolidated revenue
in 1995, 16% in 1994 and 14% in 1993.
Item 2. Properties
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The Precision Parts segment conducts its business in company-owned
facilities totaling 270,000 square feet of office, engineering and
manufacturing space located in Detroit, Clifford, and Deckerville,
Michigan, as well as Cedar Falls, Iowa.
The Special Machines segment conducts its business in company-owned
facilities totaling 242,000 square feet of office, engineering and
manufacturing space in Bay City, Warren, and Fraser, Michigan.
The Company leases 7,000 square feet of office space for its corporate
headquarters in Bloomfield Hills, Michigan.
All of these facilities are fully utilized and are suitable to meet the
current capacity needs of the divisions.
Item 3. Legal Proceedings
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Various lawsuits arising during the normal course of business are pending
against the Company. In the opinion of management, the ultimate liability,
if any, resulting from these matters will have no significant effect on the
Company's results of operations, liquidity or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended October 31, 1995.
Part II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
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The information required by this item is contained in " Management's
Discussion and Analysis" in the Newcor, Inc. 1995 Annual Report to
Shareholders. This information is incorporated herein by reference.
Item 6. Selected Financial Data
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The information required by this item is contained in the Newcor, Inc. 1995
Annual Report to Shareholders under the heading " Financial Summary". This
information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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The information required by this item is contained in " Management's
Discussion and Analysis" in the Newcor, Inc. 1995 Annual Report to
Shareholders. This information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
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The information required by this item is contained in the consolidated
financial statements, " Notes to Consolidated Statements", and " Report of
Independent Accountants" in the Newcor, Inc. 1995 Annual Report to
Shareholders. This information is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
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None.
Part III
Item 10. Directors and Executive Officers of the Registrant
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The information required by Items 401 and 405 of Regulation S-K which will
be contained in the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on March 6, 1996 (the 1996 Proxy Statement) is
incorporated herein by reference.
Item 11. Executive Compensation
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The information required by Item 402 of Regulation S-K (other than
paragraphs i, k, and l thereof) which will be contained in the Company's
1996 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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The information required by Item 403 of Regulation S-K which will be
contained in the Company's 1996 Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
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None.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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(a) 1. Financial Statements
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The consolidated Financial Statements appearing on pages 15 through 23
of Newcor's 1995 Annual Report to Shareholders are incorporated herein by
reference. Except as specifically indicated herein, no other data
appearing in the Company's 1995 Annual Report to Shareholders is deemed to
be filed as part of this Form 10-K Annual Report.
2. Financial Statement Schedules
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None required.
3. Exhibits (File number for all documents incorporated
by reference if Commission File Number 1-5985)
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3(a) Restated Certificate of Incorporation dated July 25, 1990
incorporated herein by reference from Exhibit 3(a) to report on Form
10-K for the fiscal year ended October 31, 1990.
3(b) By Laws of Registrant as amended through January 14, 1991
incorporated herein by reference from Exhibit 3(b) to report on Form
10-K for the fiscal year ended October 31, 1990.
10(a)* 1982 Incentive Stock Option Plan incorporated herein by reference
from Exhibit 10(a) to report on Form 10-K for the fiscal year ended
October 31, 1983.
10(b)* Newcor, Inc. Directors' Retirement Plan incorporated herein by
reference from Exhibit 10(b) to report on Form 10-K for the fiscal
year ended October 31, 1988.
10(c)* Board of Directors Deferred Directors' Fees incorporated herein by
reference from Exhibit 10(e) to report on Form 10-K for the fiscal
year ended October 31, 1987.
10(d)* Agreement with Thomas D. Parker dated June 7, 1989 incorporated
herein by reference from Exhibit 10(h) to report on Form 10-K for
the fiscal year ended October 31, 1992.
10(e)* Newcor, Inc. 1993 Management Stock Incentive Plan incorporated
herein by reference from Exhibit 10(j) to report on Form 10-K for
the fiscal year ended October 31, 1994.
10(f)* Amendment to Newcor, Inc. 1993 Management Stock Incentive Plan
incorporated herein by reference from Exhibit 10(k) to report on
Form 10-K for the fiscal year ended October 31, 1994.
10(g)* Employment Agreement with W. John Weinhardt dated February 13, 1995.
10(h)* Change in Control Agreement with W. John Weinhardt dated February
13, 1995.
10(i)* Retirement and Termination Benefits Agreement with Richard A. Smith
dated February 22, 1995.
13 Portion of Newcor, Inc. 1995 Annual Report to Shareholders.
21 List of Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule (EDGAR file only).
* - Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
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On December 8, 1995, Newcor, Inc. filed a Form 8-K announcing the
signing of three separate definitive agreements to purchase the assets of
three unrelated rubber and plastic product companies.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Newcor, Inc.
------------
By: /s/ W. John Weinhardt 1/24/96
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W. John Weinhardt, President Date
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date Signed
- --------- ----- -----------
/s/ Jerry D. Campbell 1/23/96
- ---------------------------------- Director ---------
Jerry D. Campbell
/s/ John Garber 1/24/96
- ---------------------------------- Vice President Finance and ---------
John Garber Chief Financial Officer
/s/ Shirley E. Gofrank 1/23/96
- ---------------------------------- Director ---------
Shirley E. Gofrank
- ---------------------------------- Director ---------
Frank L. Klapperich, Jr.
/s/ William A. Lawson 1/23/96
- ---------------------------------- Director ---------
William A. Lawson
- ---------------------------------- Director ---------
Jack R. Lousma
- ---------------------------------- Director ---------
Richard A. Smith
/s/ Kurt O. Tech 1/24/96
- ---------------------------------- Director ---------
Kurt O. Tech
/s/ W. John Weinhardt 1/24/96
- ---------------------------------- President and Chief ---------
W. John Weinhardt Executive Officer
NEWCOR, INC.
Exhibit 10(g) to Form 10-K
For the Year Ended October 31, 1995
EMPLOYMENT AGREEMENT
This Agreement, dated as of the 13th day of February, 1995,
by and among NEWCOR, INC., a Delaware corporation (the
"Company"), and W. JOHN WEINHARDT ("Employee")
W I T N E S S E T H:
WHEREAS, the Company desires to engage the services of
Employee, and Employee is willing to accept such employment, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual undertakings set forth herein the parties hereto agree as
follows:
1. Employment and Duties; Board Appointment. In
accordance with actions taken and authorized by the Board of
Directors of the Company (the "Company Board"), effective upon
the arrival of Employee at the principal offices of the Company
on March 1, 1995 prepared to commence his duties hereunder,
Employee shall become employed and appointed as the President and
Chief Executive Officer of the Company and shall have the duties
and responsibilities commensurate with such titles and offices,
including, without limitation, all such duties and
responsibilities as now are or hereafter may be set forth with
respect to such offices in the by-laws of the Company. As
promptly as practicable following the commencement of Employee's
duties hereunder, the Company Board shall take necessary and
appropriate action to appoint Employee as a director of the
Company. During the period of his employment hereunder, Employee
also shall serve as an officer of such other affiliates of the
Company and in such other capacities as he may be requested by
the Company Board and shall assume such additional duties and
responsibilities as from time to time may be assigned to him by
the Company Board, all without additional compensation therefor.
Throughout the period of his employment hereunder, Employee shall
devote his business time, attention, and energy on a full-time
basis (subject to up to five weeks of vacation to be taken at
reasonable intervals during the year) exclusively to the affairs
of the Company and its affiliates.
2. Term of Employment. The employment of Employee
hereunder shall become effective as and when above provided and
shall continue thereafter through February 28, 1997 (the "Initial
Employment Period"), unless earlier terminated as hereinafter
provided. After the Initial Employment Period, the term of this
Agreement shall be automatically extended for additional one-year
periods unless written notice is given by one party to the other
of his or its intention to terminate Employee's employment
hereunder at the end of the Initial Term or any extended term, as
the case may be.
3. Cash Compensation. As full cash compensation for all
services to be performed by Employee hereunder, the Company shall
pay to Employee the following:
(a) salary at the rate of $250,000 per year (to be
reviewed annually by the Company Board), payable at the
intervals at which other executive officers of the Company
are paid;
(b) a one-time bonus in the amount of $100,000,
payable at the time Employee commences his duties hereunder;
and
(c) an additional incentive bonus (if earned) payable
after fiscal year-end in accordance with Company policy in
an amount determined under the Company's Annual Incentive
Plan, or replacement therefor applicable to executive
officers of the Company generally ("Incentive Plan");
provided, however, that the minimum amount payable to
Employee under the Incentive Plan in respect of the
Company's fiscal year ending October 31, 1995 shall be not
less than $100,000.
4. Certain Fringe Benefits. During the period of his
employment hereunder, the Company will (i) provide Employee with
the use of a new American-made automobile of Employee's choice
(and replace such automobile every two years or 50,000 miles,
whichever first occurs), maintained, insured, and equipped at the
Company's expense (subject to a $50.00 per month charge to
Employee for personal use of the automobile); (ii) subject to
Employee's insurability, obtain and pay the premiums on a whole
life policy on Employee's life in the amount of $1,500,000, which
policy shall be owned by Employee; and (iii) pay or reimburse to
Employee 100% of the dues, fees (but not the initiation fees),
assessments and minimums at one golf club of which Employee is
presently a member.
5. Other Employee Benefits. During the period of his
employment hereunder, Employee also shall be entitled to
participate in such Company employee benefit plans as from time
to time are maintained, sponsored, or made available by the
Company to its employees or its executive employees generally
(including but not limited to the Company's pension plan and
401(k) plan), in each case on the same terms and subject to the
same conditions and limitations generally applicable to other
executive officers of the Company with respect to participation
therein; provided, however, regardless of such conditions and
limitations, the Employee shall be provided (at no cost to
Employee) full family health, hospitalization, major medical and
dental coverage.
6. Certain Expenses. The Company shall pay or reimburse
Employee for the reasonable travel, entertainment and other
incidental expenses (including the cost of business publications
and professional associations) incurred on business of the
Company with the approval of the Chairman of the Company, and in
accordance with the Company's practices as in effect during the
term of this Agreement as applied to executive officers.
7. Stock Options. As evidenced by that certain Stock
Option Agreement to be entered into between Employee and the
Company (the "Option Agreement"), Employee shall be granted under
the Company's 1993 Management Stock Incentive Plan so-called non-
qualified stock options to purchase an aggregate of 100,000
shares of the common stock of the Company (which options shall
vest with respect to 25,000 shares per year commencing one year
from the date of the Option Agreement) on the terms and subject
to the conditions specified in the Option Agreement, including a
condition that Employee commence employment hereunder by March 3,
1995.
8. Other Insurance. The Company shall have the right to
purchase disability and group life insurance policies (in
addition to the policy referred to in Section 4 above) on
Employee whenever during the period of his employment hereunder
the Company deems it reasonable to acquire such insurance.
Employee agrees to cooperate in the acquisition of such insurance
and to perform all acts necessary and proper in connection
therewith, including submission to such medical examinations as
may be required. Any policy owned by the Company may be dealt
with in such manner as the Company deems appropriate.
9. Certain Continuing Obligations of Employee. Throughout
the period of his employment hereunder and thereafter, Employee
agrees to keep confidential all trade secrets, customer lists,
business strategies, financial and marketing information, and
other data concerning the private affairs of the Company or any
of its affiliates made known to or developed by Employee during
the course of his employment hereunder ("Confidential
Information"), not to use any Confidential Information or supply
Confidential Information to others other than in furtherance of
the Company's business, and to return to the Company upon
termination of his employment all copies, in whatever form, of
all Confidential Information and all other documents relating to
the business of the Company or any of its affiliates which may
then be in the possession or under the control of Employee.
Employee acknowledges and agrees that any intellectual
property of any sort developed or invented by Employee while
employed by the Company (whether or not during work hours) shall
be and remain the sole and exclusive property of the Company, and
Employee shall have no interest therein.
Employee further agrees that, during the period of his
employment hereunder and for five years thereafter, he will make
no attempt whatsoever to induce or encourage any other employee
of the Company or any of its affiliates to leave such employment
for employment with any other entity engaged in any line of
business competitive with the Company or any of its affiliates.
At the request of the Company Board, whether or not made
during the period of his employment hereunder, Employee agrees to
execute such confidentiality agreements, assignments of
intellectual property rights, and other documents as hereafter
may be reasonably determined by the Company Board to be
appropriate to carry out the purposes of this Section.
10. Termination of Employment; Effect.
(a) Employee's employment hereunder will be terminated
in any of the following ways:
(i) Immediately upon the death of the
Employee;
(ii) Immediately upon the Employee becoming
permanently disabled within the meaning of the
Company's long term disability policy as then in
effect;
(iii) By either the Employee or the Company
giving notice of his or its intention not to extend
this Agreement's term as provided in Section 2 above,
in which case Employee's employment will terminate at
the end of the Initial Term or extended term, as the
case may be; or
(iv) By either the Employee or the Company,
without or with Cause (as hereinafter defined), by 30
days' prior written notice to the other, effective as
of the date specified in such notice.
(b) Upon the termination of Employee's employment in
any of the ways provided in subsection (a), then this
Agreement and all rights and obligations of Employee and the
Company hereunder (as opposed to rights and obligations
under the Option Agreement and under any Company employee
benefit plan in which Employee participated) shall terminate
and cease immediately, except for (i) Employee's rights to
the payments provided in Section 11 below; and (ii) the
rights and obligations set forth in Section 9 above and
Section 14 below. 11. Payments On Termination. Employee
shall be entitled to the following payments and benefits
upon termination of his Employment:
(a) If Employee's employment is terminated under
Section 10(a)(i) above, or if Employee's employment is
terminated by Employee under Section 10(a)(iii) above, or if
Employee's employment is terminated (either voluntarily by
Employee or for Cause by the Company) under Section
10(a)(iv) above, then Employee shall be entitled to the cash
compensation under Section 3(a) above, and the benefits to
which Employee is entitled under Sections 4 and 5 above,
through the date of termination of employment.
(b) If Employee's employment is terminated under
Section 10(a)(ii) above, or by the Company, either without
Cause under Section 10(a)(iv) above or pursuant to Section
10(a)(iii) above, Employee shall be entitled to the cash
compensation payable under Section 3(a) above, continuation
of the benefits referred to in Sections 4(i), 4(iii) and 5
above, and payment of premiums due on the life insurance
policy referred to in Section 4 above, for a period of one
year following the effectiveness of such termination of
employment; provided, however, that in the event termination
of employment occurs during the Initial Employment Period,
such payments and benefits shall continue for the longer of
one year following termination, or the balance of the
Initial Employment Period; and provided, further, that the
benefits provided under Section 4(i) and (iii) above shall
continue for the period determined as aforesaid but not
after Employee shall be effectively provided with
substantially equivalent such benefits by another employer.
In the event termination of employment occurs under Section
10(a)(ii) above, the payments made by the Company as
aforesaid shall be reduced by any payments made to Employee
under the Company's long-term disability policy. In
addition, Employee shall be entitled to receive any bonus
earned by Employee under Section 3(c) above through the date
of termination of employment payable at such time as any
like bonuses are paid by the Company generally, and
outplacement services (including an office) with a firm
designated by the Employee and approved by the Company for a
period not to exceed twelve months.
12. Definition. For purposes of this Agreement, "Cause"
means any of the following:
(a) Material breach of any of the terms of this
Agreement or of the Company's policies and procedures
applicable to employees and/or directors;
(b) Conviction of or plea of guilty or nolo contendere
to a crime involving moral turpitude or involving any
violation of securities or commodities law or regulation, or
the issuance of any court or administrative order enjoining
or prohibiting Employee from violating any such law or
regulation;
(c) Repeated or habitual intoxication with alcohol or
drugs while on the premises of the Company or any of its
affiliates or during the performance by Employee of any of
his duties hereunder;
(d) Embezzlement of any property belonging or
entrusted to the Company or any of its affiliates;
(e) Repeated or protracted absence from work without
cause;
(f) Willful misconduct or gross neglect of duties, or
failure to act with respect to duties or actions previously
communicated to Employee in writing by the Company Board;
(g) Any other act or omission of kind or nature
similar to any of the foregoing, or determined in good faith
by the Company Board to be of comparable seriousness, which
in the good faith judgment of the Company Board may have
adversely affected or may in the future adversely affect the
Company or any of its affiliates, or has irreparably damaged
Employee's continued ability to function effectively in any
of the capacities contemplated by this Agreement.
13. Integration; Amendment. This Agreement and the Option
Agreement contain the entire agreement of the parties relating to
the subject matter hereof and thereof, and together supersede and
replace in their entirety any prior agreements or understandings
concerning such subject matter. This Agreement may not be waived,
changed, modified, extended, or discharged orally, but only by
agreement in writing signed in the case of the Company by a duly
authorized non-employee member of the Company Board.
14. Arbitration. Any controversy, dispute, or claim
arising out of or relating to Employee's employment or to this
Agreement or breach thereof shall be settled by arbitration in
accordance with the commercial rules of the American Arbitration
Association at its Southfield, Michigan offices. Judgment upon
any award may be entered in any circuit court or other court
having jurisdiction thereof, without notice to the opposite party
or parties. Anything contained herein to the contrary
notwithstanding, this
agreement to arbitrate shall not be deemed to be a waiver of the
Company's right to secure equitable relief including injunction
(whether as part of or separate from the arbitration proceeding)
if and when otherwise appropriate.
15. Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
Michigan applicable to contracts made and to be performed within
such State.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
NEWCOR, INC.
By /s/ William A. Lawson
------------------------
Its Chairman of the Board
------------------------
/s/ W. John Weinhardt
----------------------------
W. JOHN WEINHARDT
DEFS2\341555.1\064789-00031
NEWCOR, INC.
Exhibit 10(h) to Form 10-K
For the Year Ended October 31, 1995
February 13, 1995
Mr. W. John Weinhardt
President and Chief Executive Officer
Newcor, Inc.
1825 S. Woodward
Suite 240
Bloomfield Hills, MI 48302
Dear John:
Newcor, Inc. (the "Company") recognizes that the possibility of a
change in control of the Company may create uncertainty for the
Company's management and other key employees and lead to the
departure or distraction of such employees. Consequently, the
Board of Directors of the Company has authorized it to provide to
you (the "Employee") the benefits set forth in this letter as an
inducement to you to remain with the Company in such
circumstances.
Our agreements are as follows:
1. If, at any time within eighteen (18) months after a change
in control (as defined below), the Company terminates
Employee's employment for any reason other than cause (as
defined below) or Employee terminates such employment for
good reason (as defined below), the Company shall:
(a) Pay the Employee's base salary and other benefits
of employment through the effective date of termination
on regularly scheduled payroll dates,
(b) Pay in a lump sum in cash within fifteen (15) days
after the effective date of termination an amount equal
to the product of (i) 2.5 multiplied by (ii) the sum of
(1) the Employee's annual base salary on the effective
date of termination (or, if higher, the annual base
salary in effect immediately prior to the change in
control) plus (2) the average annual bonus of the
Employee for the three (3) full fiscal years of the
Company immediately preceding the effective date of
termination (or, if higher, such average bonus for the
three (3) full fiscal years immediately preceding the
change in control) (or, if such termination or change
of control occurs within three (3) years of the time
Employee commences employment, the highest average
bonus for such shorter period),
(c) Continue for thirty (30) months, but not after
Employee and Employee's family shall be effectively
provided with substantially equivalent such benefits
under a non-contributory plan by another employer, all
health, hospitalization, surgical, major medical and
dental benefits to which Employee and Employee's family
were entitled on the effective date of termination (or,
if more favorable in the aggregate to Employee and
Employee's family, to which they were entitled
immediately preceding the change in control), and
(d) Continue for thirty (30) months, but not after
Employee and Employee's family shall be effectively
provided with substantially equivalent such benefits
under a non-contributory plan by another employer, all
life insurance and accidental death and disability
benefits to which Employee and Employee's family were
entitled on the effective date of termination (or, if
more favorable in the aggregate to Employee and
Employee's family, to which they were entitled
immediately preceding the change in control), and
(e) Pay the entire fee for the services of an
outplacement firm (including an office) selected by
Employee to consult with and advise Employee on
subsequent employment and/or career alternatives.
Upon the expiration of the period of coverage set forth in
clause (c) above, the Company shall cause to be provided to
Employee health benefits with such coverages, for such
periods, and at costs to Employee not in excess of,
coverages, periods and costs which the Company would have
been obligated to provide to Employee under the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") if
Employee had been terminated on the date of such expiration.
2. If, at any time within eighteen (18) months after a change
in control, Employee terminates Employee's employment by the
Company other than for good reason, the Company shall
provide the payments and benefits described in paragraph 1
above, except that:
(a) The lump sum payable under clause (b) of paragraph
1 shall equal one-half of the amount otherwise
calculated thereunder,
(b) The period of time for which the Company shall
provide the benefits described in clause (c) and clause
(d) of paragraph 1 shall be one-half the time otherwise
provided thereunder.
3. Upon the occurrence of a change in control all options to
acquire securities of the Company held by Employee shall be
immediately exercisable in full including all unmatured
installments thereof if any and, in addition, such options
shall be exercisable for six (6) months following any
termination of Employee's employment within a period of
eighteen (18) months after a change in control or such
lesser period as the option would have been exercisable if
Employee's employment had not been terminated.
4. Nothing in this Agreement is intended to constitute, or
shall be construed as constituting, a contract or other
arrangement between the Employee and the Company providing
for Employee's employment for any specific period of time.
Further, nothing in this Agreement is intended to prevent or
limit Employee's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided
by the Company or any affiliate or subsidiary of the Company
and for which Employee may otherwise qualify.
5. As used in this Agreement:
(a) "Change in control" shall mean a change in control
of the Company (or similar event) that would be
required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 as in effect on the
date hereof (the "Exchange Act") or, if said Item 6(e)
of the Exchange Act is no longer in effect, any
regulations issued by the Securities and Exchange
Commission pursuant to the Exchange Act or legislation
enacted by Congress (together with regulations
promulgated thereunder) which serve similar purposes.
Without limitation of the foregoing, a change in
control shall be deemed to have occurred if and when:
(a) any "person" (as such term is used in Section 13(d)
and 14(d) of the Exchange Act) is or becomes a
beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined
voting power of the Company's then outstanding
securities ordinarily having the right to vote for the
election of directors of the Company, (b) the Company
shall have merged or consolidated with another
corporation and as a result of such merger or
consolidation less than 70% of the outstanding
securities ordinarily having the right to vote for the
election of directors of the surviving or resulting
corporation shall be owned in the aggregate by the
shareholders of the Company immediately prior to such
merger or consolidation, (c) the Company shall have
sold or otherwise disposed of, or agreed to sell or
otherwise dispose of, to a person (as hereinabove
defined) in a single transaction or to more than one
person in a series of related transactions assets of
the Company constituting all or a major portion of the
assets of a business segment of the Company or (d)
individuals who are members of the Board of Directors
of the Company immediately prior to a meeting of the
shareholders of the Company involving a contest for the
election of directors shall not constitute a majority
of the Board of Directors following such meeting.
(b) "Good reason" shall mean Employee's termination of
Employee's employment due to the Employee's good faith
determination (which determination shall be conclusive)
that (1) there has occurred a significant change in the
nature or scope of any of Employee's positions, status,
office, support, authority, powers, functions, duties
or responsibilities from that existing immediately
prior to the change in control, (ii) there has occurred
a reduction in any of Employee's compensation, benefits
or perquisites of office from that existing immediately
prior to the change in control (or, if more favorable
to the Employee, those existing immediately prior to
the effective date of termination), (iii) there has
been imposed on the Employee a requirement that
Employee perform Employee's duties on more than an
occasional basis at locations other than those at which
such duties were performed immediately prior to the
change in control, (iv) the Company has breached this
Agreement, or other agreement between Employee and the
Company or any affiliate or subsidiary of the Company,
and such breach has not been cured within ten (10) days
of written notice of such breach from Employee to the
Company or (v) the Company has failed to require a
successor to all or substantially all of the business
or assets of the Company (whether direct or indirect,
or by purchase, merger, consolidation, acquisition of
such or otherwise) expressly to assume all of the terms
and obligations of this Agreement by an agreement in
writing in form and substance satisfactory to Employee.
(c) "Cause" means gross misconduct or willful breach
of any written contract of employment with the Company
or a subsidiary of the Company.
6. The Company's duties to make the payments and to perform the
obligations described in this Agreement shall not be
affected or reduced by any right of set-off, counterclaim,
recoupment, defense or other right which the Company may
have against Employee or any other person. Employee shall
not be obligated under any circumstances to seek other
employment by way of mitigation of the amounts or benefits
payable or providable to Employee under this Agreement. The
Company agrees to pay within fifteen (15) days after invoice
therefor all reasonable legal fees and expenses which
Employee may incur as a result of any contest (regardless of
the outcome thereof) by the Company or any other person of
the validity or enforceability of, or liability of the
Company under, any provision of this Agreement. Any amounts
owing by the Company under this Agreement and not paid or
provided when due (or, if no due date shall be set forth
herein, not paid or provided within five (5) days after
written demand therefor) shall bear interest, compounded
quarterly, from such due date to the date when paid at the
rate of 2% plus the rate from time to time announced by
Citibank NA of New York, New York (or any successor
institution) as its "prime" or "base" rate.
7. The Company may withhold from any amounts payable under this
Agreement federal, state or local taxes or other amounts
required to be withheld pursuant to any applicable law or
regulation.
8. This Agreement (a) shall inure to the benefit of and be
binding upon the Company and its successors and assigns and
shall inure to the benefit of Employee and Employer's legal
representatives, (b) shall be governed by the internal laws
of the State of Michigan, without reference to principles of
conflicts of law and (c) may be amended only by an agreement
in writing executed by the Company and Employee or their
respective successors and legal representatives. The
invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. Any notices required
or which may be given under this Agreement shall be in
writing and shall be effective when delivered or three days
after mailing by registered or certified mail, return
receipt requested, postage prepaid, addressed:
If to the Company:
Newcor, Inc.
1825 S. Woodward
Suite 240
Bloomfield Hills, MI 48302
If to the Employee:
W. John Weinhardt
619 Kingsley Trail
Bloomfield Hills, MI 48304
or to such other address as either party shall have
furnished by notice to the other.
9. This Agreement is supplementary to and shall not affect in
any manner any written employment agreement between the
Company and the Employee.
10. This Agreement contains the entire understanding of the
Company and Employee regarding the subject matter of this
Agreement.
The foregoing shall become a binding agreement upon your
execution and delivery to the Company of a copy of this letter.
Sincerely,
NEWCOR, INC.
/S/ William A. Lawson
William A. Lawson
Chairman of the Board
ACCEPTED:
/s/ W. John Weinhardt
- -----------------------
W. John Weinhardt
NEWCOR, INC.
Exhibit 10(I) to Form 10-K
For the Year Ended October 31, 1995
RETIREMENT AND TERMINATION
BENEFITS AGREEMENT
THIS AGREEMENT, dated as of the 22nd day of February, 1995,
by and among NEWCOR, INC., a Delaware corporation (the
"Company"), and RICHARD A. SMITH ("Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee are parties to a certain
Employment Agreement dated December 15, 1993, as amended by
agreement dated March 2, 1994 (the "Employment Agreement")
pursuant to which Employee has been employed as the President and
Chief Executive Officer of the Company; and
WHEREAS, the Company and Employee have carried on
discussions and reached certain understandings concerning
Employee's retirement as an employee and officer of the Company;
and
WHEREAS, the Employment Agreement contains certain
provisions concerning termination benefits in the event the
Employment Agreement is terminated; and
WHEREAS, the Company and Employee desire to modify and
supersede the Employment Agreement as it relates to Employee's
retirement.
NOW, THEREFORE, in consideration of the premises, the
agreements and understandings contained herein, and the payments
to be made by the Company pursuant hereto, the Company and
Employee mutually agree as follows:
1. Retirement; Resignation. Employee shall retire as an
employee and resign as an officer of the Company, effective
March 1, 1995 (the "Effective Date"). The Employment Agreement
shall remain in full force and effect until the Effective Date.
The Employment Agreement, and all other agreements, commitments
and understandings between the Company and Employee, whether oral
or written, shall terminate and end as of the Effective Date.
Such retirement and resignation, however, shall in no way affect
Employee's service as a Director of the Company, which shall
continue in accordance with the Bylaws of the Company and
applicable law.
2. Continuing Activities. Notwithstanding Employee's
resignation as an employee, and in consideration of the payments
to be made hereunder by the Company, Employee agrees to make
himself available at the Company's executive offices at
prearranged times during regular business hours for a reasonable
period following the Effective Date to consult with the President
and Chief Executive Officer of the Company. The length of such
service shall be mutually agreed upon by Employee and the
President and Chief Executive Officer. Following such period and
continuing through the remainder of the Payment Period (as
hereinafter defined), as may be in each instance agreed to by
Employee and the Chairman of the Company, Employee shall consult
with the Company concerning such matters related to the Company's
business as employee shall reasonably determine he can provide
assistance to the Company.
3. Continuing Payments. In consideration of the
foregoing, and the other agreements and undertakings of Employee
contained herein, and in full accord, satisfaction and discharge
of any and all obligations, agreements (including the Employment
Agreement), commitments and understandings, the Company shall for
the period commencing on the Effective Date and ending on March
31, 1996 (the "Payment Period"):
a. Pay Employee the sum of $215,193, payable at the
intervals at which executive officers of the Company receive
salary payments, less any taxes and other deductions
required to be withheld by law.
b. Provide Employee and his family with the full
health, life and accident and disability insurance benefits
presently made available by the Company to the Employee in
accordance with the Employment Agreement.
c Permit Employee continued use of the Company-owned
car presently driven by Employee, and pay all insurance,
maintenance and repair and all other costs and expenses
(including the cost of gasoline) of such automobile
resulting from Employee's use of it.
4. Office Support. Commencing upon the expiration of the
transition period referenced in Paragraph 2 above, and continuing
for the balance of the Payment Period, the Company shall
reimburse Employee, upon submission of satisfactory evidence of
payment, for the costs, not to exceed $10,000 in the aggregate,
of maintaining an office of Employee's selection and other
transitional expenses.
5. Options. As provided in the Company's 1982 and 1993
Management Stock Incentive Plan (the "Plan"), Employee shall have
12 months following the Effective Date to exercise any options
issued to Employee under the Plan which are vested as of the
Effective Date.
6. Other Agreements. Following the Effective Date, the
Company agrees to reimburse Employee for all expenses incurred by
Employee in connection with his employment with the Company,
following receipt from Employee of all outstanding expense
reports, in the manner and format customarily prescribed by the
Company of its employees.
7. Release. In consideration of the payments and
reimbursements to be made hereunder by the Company (which
Employee acknowledges as good and valuable consideration and
which constitute, in whole or in part, monies or benefits to
which Employee is not otherwise entitled under the Employment
Agreement or otherwise), Employee, on behalf of himself and his
heirs, legal representatives and assigns, hereby releases and
forever discharges the Company, and its subsidiaries, divisions,
units, successors, affiliates, shareholders, directors, officers,
agents, employees and former employees (hereinafter the "Released
Parties") of and from all actions, causes of action, claims,
demands, compensatory, exemplary, statutory and punitive damages,
costs, suits, debts, dues, sums of money, accounts, reckonings,
bills, covenants, contracts, liens, controversies, agreements,
promises, variances, trespasses, executions, liability and any
all consequential damages whatsoever, in law or in equity, which
Employee, individually, or in any representative capacity, had,
now has or may have or shall have against the Released Parties by
reason of any matter, fact, representation, cause or thing of any
conceivable kind and character whatsoever, and which occurred up
to the Effective Date, including specifically, but not by way of
limitation, any and all claims of discrimination, wrongful
discharge, breach of contract, fraud, promissory estoppel,
misrepresentation, retaliation, all claims under or in connection
with the Age Discrimination in Employment Act, the Older Workers
Benefits Protection Act, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Employee Retirement
Income Security Act of 1974, the Michigan Elliott-Larsen Civil
Rights Act, the Michigan Handicappers' Civil Rights Act, the
Michigan Workers Disability Compensation Act, The American with
Disabilities Act, and any other Michigan and federal statutes and
the common law of the State of Michigan and the United States,
actions based on torts, public policy, defamation or injuries
incurred on the job or incurred as a result of loss of
employment, and any and all claims and demands of every
conceivable kind based upon or in connection with or involving
Employee's employment and the termination of such employment.
8. Waiver. In further consideration, Employee, on behalf
of himself, his heirs, legal representatives and assigns, hereby
covenants with the Released Parties that he will not sue or
proceed in any manner, whether at law or in equity, against any
of them, for and account of any claim of any nature whatsoever,
including but not limited to any claim for injuries or
compensatory, exemplary, statutory or punitive damages as the
result of the events arising out of or relating in any way to
Employee's employment or the termination of such employment with
the Company.
9. Indemnification. Nothing contained herein shall alter,
amend or limit in any way Employee's right and entitlement as an
officer, director and employee of the Company to be indemnified
by the Company in accordance with, and subject to, the
Certificate of Incorporation and Bylaws of the Company and
applicable law.
10. Additional Agreements by Employee. Employee hereby
makes the following additional agreements with the Company:
a. The Employee agrees that he will not, at any time
during the Payment Period, without Company's express written
consent engage in any business that is competitive with any
business of the Company, directly or indirectly, alone or as
a partner, officer, director, stockholder employee of, or as
a consultant or adviser to, any other entity.
b. Throughout the Payment Period and continuing
thereafter, Employee agrees to keep confidential all trade
secrets, customer lists, business strategies, financial and
marketing information, and other data concerning the private
affairs of the Company or any of its affiliates made known
to or developed by Employee during the course of his
employment by the Company, or during the Payment Period (the
"Confidential Information"), not to use any Confidential
Information or supply Confidential Information to others
other than in furtherance of the Company's business, and to
return to the Company all copies, in whatever form, of all
Confidential Information and other documents relating to the
business of the Company or of any of its affiliates which
may be in the possession or under the control of Employee.
Further, Employee acknowledges and agrees that any
intellectual property of any sort developed or invented by
Employee while employed by the Company (or any at time
during the Payment Period) whether or not during work hours,
shall be and remain the sole and exclusive property of the
Company, and Employee shall have no interest therein.
c. Employee agrees that, during the Payment Period
and for five (5) years thereafter, he will make no attempt
whatsoever to induce or encourage any employee of the
Company or any of its affiliates to leave such employment
for employment with any other entity with which Employee is
associated and which is engaged in any line of business
which is competitive with the Company or any of its
affiliates; provided, however, the foregoing restriction and
agreement by Employee shall not relate to any family member
of Employee, including Eric Smith, a current employee of the
Company.
11. Waiting and Revocation Periods. Employee expressly
acknowledges that he has been advised and instructed that he has
the right to consult an attorney and that he should review the
terms of this Agreement with counsel of his own selection.
Employee further acknowledges that he has twenty-one (21) days
with which to consider the terms of this Agreement and to review
its terms and conditions with his attorney. Employee understands
and agrees that this Agreement is revocable by either party for
seven (7) days after its execution by both parties, and that this
Agreement shall not become effective or enforceable until such
period has expired. This Agreement automatically becomes
enforceable and effective on the 8th day after the date this
Agreement is signed by the parties. This Agreement may be
revoked by a writing sent certified mail by either party post-
marked no later than the 7th day after the Agreement is signed by
both parties (unless that day is a Sunday or a holiday, in which
event the period is extended to day there is mail service).
12. Entire Agreement. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof
and supersedes all other agreements or understandings, including,
but not limited to the Employment Agreement. This Agreement
cannot be altered or amended except in writing, which writing
must be signed by Employee and the President and Chief Executive
Officer of the Company. In no event shall this Agreement be
modified by any oral statements, agreements, commitments or
understandings.
13. Free Act and Deed. The Company and Employee
acknowledge that they have reviewed this Agreement, understand
its terms and execute this Agreement as their free act and deed.
Employee further acknowledges that he has been afforded the
opportunity to review this Agreement with counsel of his own
choice and that he knowingly and voluntarily approves this
Agreement.
14. Choice of Law and Severability. This Agreement shall
be governed by and construed in accordance with the internal laws
of the State of Michigan applicable to contracts made and to be
performed within such State. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other
provision hereof, but this Agreement shall, in such event, be
construed as if such invalid and/or unenforceable provision had
never been contained herein.
15. Arbitration. In any controversy, dispute, or claim
arising out of or relating to this Agreement or any claimed
breach thereof shall be settled by arbitration in accordance with
the commercial rules of the American Arbitration Association at
its Southfield, Michigan offices. Judgment upon any award may be
entered in any circuit court or other court having jurisdiction
thereof, without notice to the opposite party or parties.
Anything contained herein to the contrary notwithstanding, this
agreement to arbitrate shall not be deemed to be a waiver of the
Company's right to secure equitable relief including injunction
(whether as part of or separate from the arbitration proceeding)
if and when otherwise appropriate.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THIS IS A RELEASE. READ BEFORE SIGNING.
NEWCOR, INC.
By /s/ William A. Lawson
-----------------------
Its Chairman
------------------
/s/ Richard A. Smith
----------------------
RICHARD A. SMITH
NEWCOR, INC.
Exhibit 13 to Form 10-K
For the Year Ended October 31, 1995
Portion of Newcor, Inc. 1995 Annual Report to Shareholders
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview of Fiscal 1995 and Outlook for Fiscal 1996
- ---------------------------------------------------
Newcor is organized into two business segments: Precision Parts and
Special Machines. The Precision Parts segment consists of automotive
components and farm equipment parts machined in dedicated manufacturing
cells, molded rubber and plastic parts, and non-symmetrical machine
contoured parts produced and sold in small quantities. Special machines
consist of a range of standard individual machines, as well as custom
designed machines on a made-to-order basis and sold either individually or
incorporated into complete systems. Revenues and costs for special
machines are determined under the percentage of completion method of
accounting.
During 1995, Newcor reported net income of $881,000, or $0.19 per
share on sales of $116.6 million. 1995's results represented significant
improvement over 1994's $0.47 per share loss, but remained below the record
earnings levels reached during the years 1991 through 1993. Throughout
1994 and the first three quarters of 1995, performance was negatively
impacted by costs related to correcting field problems on several special
machine systems that were shipped during 1994. No major problems with
these systems were encountered during the fourth quarter of 1995, which
enabled Newcor to earn $0.16 per share.
1995 marked the retirement of Richard Smith as President and CEO of
Newcor, Inc. Mr. Smith's replacement, W. John Weinhardt, who started at
Newcor on February 21, 1995, announced that he intended to establish Newcor
as a world-class supplier through the vigorous implementation of just-in-
time manufacturing and continuous improvement programs. Since then, each
of Newcor's divisions has initiated programs to sharpen their focus on
customer satisfaction and operational improvement. Through increased
implementation of tools such as work cells, statistical methods, program
management, and lean production methods, Newcor has begun its drive for
continuous improvement in the areas of quality, delivery and cost.
1995 was also a year of transition for Newcor because it was the first
year that Precision Parts segment sales exceeded Special Machines segment
sales. Two of our existing Precision Parts divisions were awarded
significant new contracts during the second quarter of 1995 that will
approach full production during the second quarter of 1996. In addition,
subsequent to year-end, in December 1995, Newcor signed three separate
definitive agreements to purchase the assets of three non-related companies
in the molded rubber and plastic component parts industry. Each company
primarily manufactures parts for the automotive industry. On a combined
basis, these companies should yield annual incremental sales of
approximately $24 million, taking Newcor's total rubber and plastic
products business to over $40 million in annual sales.
The Precision Parts segment had a record year in 1995 with operating
profit of $4.8 million, compared to $3.8 million in 1994 and approximately
$2.1 million in both 1993 and 1992. This trend of improving results has
been fueled by strong automotive sales and new business that has been won
over the past few years. Although 1996 passenger car and light truck
production may be flat to slightly lower than 1995, the combination of
incremental new business for 1996, the recent rubber and plastic company
acquisitions, and internal efficiency improvements should enable the
Precision Parts segment to achieve record earnings again in 1996.
The Special Machines segment ended 1995 with an operating loss of
$241,000 compared to a $5.9 million operating loss in 1994 and over $7
million of operating profit in 1993. Additional costs incurred to fix
field problems related to systems shipped in 1993 and 1994 caused the
segment's results to fall below acceptable levels of performance. A number
of organizational and procedural changes were implemented during 1995 to
eliminate the problems that occurred in 1994. The corrective actions have
had a positive effect as a number of jobs were designed, built and shipped
in 1995 at or near their original budgeted cost.
During 1995, we received new orders of $111 million, compared to
$116.6 million in 1994 and $113.5 million in 1993. Fiscal 1995 would have
been a record year for new orders if not for the cancellation of a multi-
million dollar assembly system order that was expected to be received in
the second quarter of 1995. The project was canceled due to a change in
product plans by the customer. The ending backlog at October 31, 1995 was
$49 million compared to $54.6 million at year end 1994 and $50 million at
year end 1993.
Fiscal 1995 Compared with Fiscal 1994
- --------------------------------------------------
Consolidated sales in 1995 reached a new record of $116.6 million,
which was 4% higher than sales in 1994. Sales for the Precision Parts
segment were up 27%, but Special Machine segment sales were 12% lower. The
increase in the Precision Parts segment is due to higher automotive
releases, as well as additional new business that began production in 1995.
Also, the Blackhawk division of the Precision Parts segment was purchased
in February 1994. Accordingly, 12 months of Blackhawk's sales are included
in 1995 versus 9 months of sales in 1994. Sales in the Special Machines
segment declined due to the timing of the receipt of orders. Two of the
three Special Machine divisions went through periods of very low assembly
activity because large jobs had been shipped and design of the new jobs had
not completed their engineering phase.
Consolidated gross profit margins improved from 11.4% in 1994 to 15.7%
in 1995. The increase was primarily due to resolution of special machine
system problems that were encountered in 1994. The gross margin percentage
remained below target levels due to unrecovered direct material price
increases, start-up costs on new business within the Precision Parts
segment, and the cost to fix field problems on special machine systems
shipped during 1994.
Selling, general and administrative (SG&A) costs were decreased from
$16.2 million in 1994 to $15.5 million in 1995. The decrease resulted from
continuing actions to control SG&A costs throughout the organization, as
well as a reduction in higher than normal research and development costs
that were incurred in 1994 to satisfy unique special machine system process
requirements.
Interest expense for 1995 was $1.9 million, which was $360,000 higher
than in 1994. The increase was due to the additional debt incurred to
purchase Blackhawk in 1994 and higher average interest rates in 1995
compared with 1994. The effective income tax rate for 1995 was 30% due
principally to the research and development tax credit.
Fiscal 1994 Compared with Fiscal 1993
- --------------------------------------------------
Consolidated 1994 sales of $112 million were 2.7% lower than in 1993.
Special machine sales were down 17.6% due primarily to a large $35 million
engine assembly system which was completed in 1993. No orders of this
magnitude were produced in 1994. Sales for the Precision Parts segment
increased 29.8% due to the acquisition of Blackhawk in February 1994 which
generated sales of $10.7 million during 1994 and the improved economy which
resulted in additional releases from customers, particularly in the
automotive sector. These two increases were partially offset, however, by
the revenue lost from closing a plant in Rochester, Michigan early in the
fourth quarter of 1993.
Consolidated gross profit percentage fell 9.4 percentage points to
11.4% in 1994 primarily due to the cost overruns in the Special Machines
segment. The gross profit percentage in the Precision Parts segment
remained relatively constant. SG&A costs were up 3% from 1993 levels
reflecting the additional SG&A costs at Blackhawk and higher research and
development expenditures, which were partially offset by lower SG&A costs
throughout the balance of the Company.
Interest expense increased significantly during 1994 due to higher
average borrowing levels related to the purchase of Blackhawk, higher
Special Machine segment working capital requirements, and interest rate
increases during the last half of 1994. The effective income tax benefit
rate for 1994 was 53.5% of the pre-tax loss. The additional benefit above
the statutory rate of 34% was primarily due to a significant research and
development tax credit.
Liquidity and Capital Resources
- --------------------------------------------------
Bank debt was decreased $4.9 million during 1995 and, as of October
31, 1995, $20.1 million was outstanding under a $28 million revolving
credit agreement with a major U.S. bank. The main factors contributing to
the decrease in debt were (1) net income after adding back depreciation and
amortization generated $4.2 million of cash and (2) working capital
reductions primarily due to lower inventory build in the Special Machines
segment generated $6.2 million of cash. In addition, the Company initiated
an aggressive program of working capital management in all business units
during 1995. The positive cash flow from these two factors was partially
offset by capital expenditures of $4.8 million, primarily for new equipment
and building expansions to support the new business awarded to the
Precision Parts segment.
Bank debt during 1994 increased $19.5 million due to (1) the purchase
of Blackhawk for $8.8 million,(2) capital expenditures of $5 million
primarily for the purchase of machines within the Precision Parts segment,
and (3) consolidated operations using $5.8 million of cash as a result of
the net loss and an increase in net working capital requirements.
As described earlier, in December 1995, Newcor signed definitive
agreements to purchase for cash certain assets of three companies that
design and manufacture rubber and plastic products. The total purchase
price of all three transactions will be approximately $12 million and
financing for the purchases will initially be obtained through an increase
in our existing line of credit. In addition, we anticipate capital
spending in 1996 to be approximately $5 million, with the majority of this
amount being spent within the Precision Parts segment for equipment related
to the additional business received in 1995 that will begin production in
1996. The Company expects to shift a sizeable portion of its debt to long-
term financing at a favorable fixed rate during 1996. The Company believes
that existing and potential debt capacity and cash from operations will be
adequate to service debt obligations, continue capital improvements, and
maintain adequate working capital.
The Company continues to pay a quarterly cash dividend of $.05 per
share of common stock. Total dividends paid in 1995 were $936,000 compared
to $932,000 in 1994 and $923,000 in 1993. Future dividends will be
determined at the quarterly meetings of the Board of Directors after
considering cash requirements for operations and reviewing the Company's
financial condition and strategic direction.
One of Newcor's Special Machines divisions has been identified by the
Environmental Protection Agency as a potentially responsible party at a
waste disposal site. The division's waste and proportionate share were
minimal. Accordingly, management believes that any potential cost incurred
by Newcor will not have a material effect on our results of operations,
liquidity or financial position. In addition, various lawsuits arising
during the normal course of business are pending against the Company.
Management believes that the ultimate liability, if any, resulting from
these matters will have no significant effect on the Company's results of
operations, liquidity or financial position.
Market Prices and Dividends
Newcor's common stock is traded on the NASDAQ National Market System under
the symbol " NEWC." The high and low sales prices for the common stock and
the cash dividends declared per share in 1995 and 1994 are shown in the
table below. The Company estimates that there are approximately 2,900
shareholders of record.
1995 High Sales Price Low Sales Price Dividends
- -------------- ---------------- --------------- ---------
First Quarter $ 8 1/2 $ 6 3/4 $ .05
Second Quarter 7 5/8 6 5/8 .05
Third Quarter 8 5/8 6 1/4 .05
Fourth Quarter 8 7/8 7 1/2 .05
1995 High Sales Price Low Sales Price Dividends
- -------------- ---------------- --------------- ---------
First Quarter $ 14 1/8 $ 9 1/2 $ .05
Second Quarter 12 1/4 9 5/8 .05
Third Quarter 11 1/4 9 .05
Fourth Quarter 10 7 1/8 .05
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the years ended October 31, 1995 1994 1993
-------- --------- ---------
Sales $116,630 $111,986 $115,088
Cost of sales 98,304 99,169 91,090
Gross margin 18,326 12,817 23,998
Selling, general and admin expense 15,468 16,174 15,712
Closedown of operation in Rochester, MI - - 560
Operating income (loss) 2,858 (3,357) 7,726
Other income (expense):
Interest expense (1,910) (1,546) (877)
Other 310 171 395
Income (loss) before income taxes
and cumulative effect of changes
in accounting principles 1,258 (4,732) 7,244
Provision (benefit) for income taxes 377 (2,530) 1,880
Income (loss) before cumulative effect
of changes in accounting principles 881 (2,202) 5,364
Cumulative effect of changes
in accounting principles - - 4,480
Net income (loss) $ 881 $ (2,202) $ 884
Amounts per share of common stock:
Income (loss) before cumulative effect of changes
in accounting principles $ 0.19 $ (0.47) $ 1.16
Cumulative effect of changes
in accounting principles - - 0.97
Net income (loss) $ 0.19 $ (0.47) $ 0.19
Weighted average common
shares outstanding 4,679 4,662 4,607
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
Capital in Unfunded
Common Excess Pension Retained Treasury
Stock of Par Liability Earnings Stock
Balance, October 31, 1992 $4,783 $1,168 $(273) $24,599 $(1,717)
Unfunded pension liability (579)
Net income 884
Cash dividends (923)
Shares issued under
stock option plans 59 254
Tax benefit from exercise
of stock options 185
Balance, October 31, 1993 4,842 1,607 (852) 24,560 (1,717)
Unfunded pension liability (467)
Net loss (2,202)
Cash dividends (932)
Shares issued under
stock option plans 33 285
Cancellation of treasury
shares (199) (1,518) 1,717
Balance, October 31, 1994 4,676 374 (1,319) 21,426 -
Unfunded pension liability 783
Net income 881
Cash dividends (936)
Shares issued under
stock option plans 3 21
Balance, October 31, 1995 $4,679 $ 395 $ (536) $ 21,371 $ -
The accompanying notes are an integral part
of the consolidated financial statements.
NEWCOR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
October 31, 1995 1994
Assets
Current Assets:
Cash and equivalents $ 29 $ 55
Accounts receivable including retainages
of $859 in 1995 and $3,955 in 1994 24,906 25,600
Inventories 14,763 22,312
Prepaid expenses 1,576 780
Deferred income taxes 1,620 2,795
Total current assets 42,894 51,542
Property, plant and equipment, net of
accumulated depreciation 24,518 22,793
Other assets 1,147 778
Prepaid pension expense 3,266 3,270
Deferred income taxes 194 596
Cost in excess of assigned value of
acquired companies, net of amortization 5,534 5,857
Total assets $ 77,553 $ 84,836
Liabilities
Current Liabilities:
Current portion of long-term debt $ - $ 600
Accounts payable 7,605 11,132
Accrued payroll and related expenses 3,731 3,233
Accrued installation costs 2,898 2,403
Accrued liabilities 2,085 1,988
Total current liabilities 16,319 19,356
Long-term debt, less current portion 26,200 30,900
Postretirement benefits other than pensions 6,371 6,333
Pension liability 2,754 3,090
Total liabilities 51,644 59,679
Shareholders' Equity
Preferred stock, no par value.
Authorized: 1,000 shares. Issued: None
Common stock, par value $1 per share.
Authorized: 10,000 shares.
Issued: 4,679 shares in 1995 and
4,676 shares in 1994 4,679 4,676
Capital in excess of par 395 374
Unfunded pension liability (536) (1,319)
Retained earnings 21,371 21,426
Total shareholders' equity 25,909 25,157
Total liabilities and shareholders' equity $77,553 $84,836
The accompanying notes are an integral part
of the consolidated financial statements.
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the years ended October 31, 1995 1994 1993
Operating Activities
Net income (loss) $ 881 $(2,202) $ 884
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Cumulative effect of changes in
accounting principles - - 4,480
Depreciation and amortization 3,290 2,654 1,995
Non-current deferred income taxes 402 418 (789)
Pensions 451 196 109
Gain on sale of capital assets (355) (41) (352)
Other - net (131) 185 88
Changes in operating assets and liabilities:
Accounts receivable 694 5,098 1,800
Inventories 7,549 (3,216) 1,663
Deferred income taxes and other 379 (2,056) 324
Accounts payable (3,527) (3,488) 2,384
Other accrued liabilities 1,090 (3,359) 2,084
Net cash provided by (used in)
operating activities 10,723 (5,811) 14,670
Investing Activities
Capital expenditures (4,751) (4,956) (5,639)
Proceeds from sale of capital assets 414 570 545
Use of EDC proceeds - 111 2,967
Acquisition of Blackhawk Engineering - (8,765) -
Net cash used in investing activities (4,337) (13,040) (2,127)
Financing Activities
Net borrowings (repayments) on
revolving line of credit (4,900) 19,500 (12,300)
Principal payment on EDC bonds (600) - -
Shares issued under stock option plans 24 318 313
Cash dividends paid (936) (932) (923)
Net cash provided by (used in)
financing activities (6,412) 18,886 (12,910)
Increase (decrease) in cash
and equivalents (26) 35 (367)
Cash and equivalents, beginning of year 55 20 387
Cash and equivalents, end of year $ 29 $ 55 $ 20
The accompanying notes are an integral part
of the consolidated financial statements.
NEWCOR, INC.
NOTES TO CONSOLIDATED STATEMENTS
A. ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements include
the accounts of Newcor, Inc. and all subsidiaries (the Company). All
significant intercompany accounts and transactions are eliminated.
Cash and Equivalents - Cash and equivalents consist of currency and
investments with an initial maturity of three months or less.
Inventory Valuation - Inventories are stated at the lower of cost or net
realizable value. Costs, other than those specifically identified to
contracts, are determined primarily on the first-in, first-out (FIFO)
basis except for certain inventories of the Precision Parts segment
where cost is determined on the last-in, first-out (LIFO) basis.
Contract Accounting - The percentage of completion method of accounting is
used by the Company's Special Machines segment. Sales and gross profit
are recognized as work is performed based on the relationship between
actual costs incurred and total estimated costs at completion. Sales
and gross profit are adjusted prospectively for revisions in estimated
total contract costs and contract values. Estimated losses are
recognized when determinable.
Product Engineering and Development - Costs associated with product
engineering and development were $8,738,000, $11,081,000 and $9,922,000
in 1995, 1994, and 1993, respectively. Product engineering and
development costs are charged to work in progress as incurred.
Property, Plant and Equipment - Property, plant and equipment are recorded
at cost. Depreciation of the cost of plant and equipment is computed
on the straight-line basis over the estimated useful lives of the
assets.
Cost in Excess of Assigned Value of Acquired Companies - The costs of
acquired companies that exceed the assigned value at dates of
acquisition are being amortized over periods ranging from twenty to
forty years. Accumulated amortization was $1,463,000 and $1,140,000 at
October 31, 1995 and 1994, respectively. At each balance sheet date,
the Company evaluates the realizability of each business units'
goodwill based upon expectations of future nondiscounted cash flows.
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities.
B. ACQUISITIONS:
On December 4 and 5, 1995, the Company signed three separate
agreements to purchase for cash certain assets of three unrelated companies
in the molded rubber and plastic component parts industry. Each company
primarily manufactures parts for the automotive industry. Two of the
acquisitions were completed in early January 1996 and the third is expected
to be completed in February 1996. The total purchase price for all three
acquisitions is approximately $12 million and will be financed through an
increase in the Company's existing line of credit facility. All three
acquisitions will be recorded using the purchase method of accounting. The
three acquisitions had combined sales during 1995 of approximately $22
million and estimated net book value of $4 million.
On February 10, 1994, Newcor purchased for cash all the assets of
Blackhawk Engineering Company (" Blackhawk"), an Iowa corporation with
operations in Cedar Falls, and Waterloo, Iowa. Blackhawk's principal line
of business is the production machining of gray iron, nodular iron, and
steel foundry castings, and its principal customer is Deere & Company. The
purchase price was approximately $8,700,000. Funds for the purchase were
obtained through an increase in Newcor's existing line of credit facility.
The acquisition has been recorded using the purchase method of accounting.
Accordingly, the purchase price was allocated to assets and liabilities
based on their estimated fair values as of the date of acquisition. The
cost in excess of net assets acquired of approximately $4,600,000 is being
amortized on a straight-line basis over twenty years. Blackhawk's results
of operations have been included in the Company's consolidated financial
statements since the date of acquisition.
C. INVENTORIES:
Inventories at October 31, 1995 and 1994 are summarized as follows:
(In thousands) 1995 1994
Costs and estimated earnings of uncompleted
contracts in excess of related billings
of $2,428 in 1995 and $2,468 in 1994 $ 9,784 $ 18,189
Other work in process, raw materials,
parts and supplies 4,979 4,123
$ 14,763 $ 22,312
Costs and estimated earnings of uncompleted contracts in excess of
related billings represents revenue recognized under the percentage of
completion method in excess of amounts billed.
Inventories on the LIFO method represent 13% and 5% of total
inventories at October 31, 1995 and 1994, respectively. The excess of
current costs over LIFO inventories at October 31, 1995 and 1994 were
$405,000 and $444,000, respectively.
D. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at October 31, 1995 and 1994 is
summarized as follows:
(In thousands) 1995 1994
Land and improvements $ 1,158 $ 1,107
Buildings 11,520 10,932
Machinery 25,356 23,758
Office and transportation equipment 4,984 4,677
Construction in progress 1,581 896
44,599 41,370
Less accumulated depreciation 20,081 18,577
$ 24,518 $ 22,793
E. CREDIT ARRANGEMENTS AND LONG-TERM DEBT:
As of October 31, 1995, the Company had $20.1 million outstanding
under a $28 million unsecured revolving credit agreement with a major U.S.
bank, which is scheduled to expire February 28, 1997. In December 1995,
this agreement was amended to increase the credit limit to $32.5 million.
Restrictive covenants pertaining to working capital, total debt and
tangible net worth are contained in the agreement. The rate of interest on
outstanding borrowings is principally at the Eurodollar rate plus 1%, which
is currently below prime. Total interest payments amounted to $1,553,000,
$1,453,000, and $925,000, in fiscal years 1995, 1994, and 1993,
respectively. Long-term debt at October 31, 1995 and 1994 consisted of the
following:
(In thousands) 1995 1994
Revolving credit line $ 20,100 $ 25,000
EDC limited obligation revenue bonds, variable
interest rate (average 4.62% in 1995),
payable January 1, 2008 6,100 6,500
26,200 31,500
Less current portion - 600
$ 26,200 $ 30,900
On September 29, 1995, Rochester Gear, Inc., a wholly owned subsidiary
of the Company (the " Subsidiary") entered into a loan agreement whereby
$6.1 million of limited obligation refunding revenue bonds were issued.
These bonds which mature on January 1, 2008 are collateralized by the
Subsidiary's land, building and equipment and guaranteed by the Company.
The majority of the proceeds were used to pay off $5.9 million of limited
obligation revenue bonds that were scheduled to mature between 1995 and
2000.
F. INCOME TAXES:
Provision (benefit) for federal income taxes (excluding the cumulative
effect of changes in accounting principles) are as follows:
(In thousands) 1995 1994 1993
Current $ 500 $(2,969) $ 2,111
Deferred (123) 439 (231)
$ 377 $(2,530) $ 1,880
Significant components of the deferred tax assets and liabilities as
of October 31, 1995 and 1994 are as follows:
(In thousands) 1995 1994
Deferred tax assets:
Accrued postretirement benefits $ 2,166 $ 2,153
Net operating loss - 1,956
Alternative minimum tax carryforward 256 -
Percentage of completion revenue 590 -
Accrued vacation and employee benefits 404 424
Accrued warranty 183 202
Other 187 222
Total deferred tax assets $ 3,786 $ 4,957
Deferred tax liabilities:
Depreciation $ 1,145 $ 839
Pensions 610 470
Other 217 257
Total deferred tax liabilities $ 1,972 $ 1,566
Net deferred tax asset $ 1,814 $ 3,391
Reconciliation of the statutory federal tax rate to the apparent rate
(excluding the cumulative effect of changes in accounting principles) is
summarized as follows:
1995 1994 1993
Statutory rate 34.0% (34.0)% 34.0%
Research and experimentation tax credit (9.4) (16.5) (11.4)
Other items, net 5.4 (3.0) 3.3
Apparent rate 30.0% (53.5)% 25.9%
Income tax refunds totalling $1,667,000 and $471,000 were received
during 1995 and 1994, respectively. Income taxes paid during 1993 amounted
to $2,330,000. Effective November 1, 1992, the Company adopted FAS 109, "
Accounting for Income Taxes." The cumulative effect of adopting FAS 109
was an increase in the long-term deferred tax asset of $177,000, a decrease
in the short-term deferred tax asset of $569,000 and a reduction in net
income of $392,000 ($0.08 per share).
G. EMPLOYEE RETIREMENT BENEFITS:
Pension Plans:
The Company provides retirement benefits for substantially all
employees under several defined benefit and defined contribution pension
plans. Benefits from these plans are based on compensation, years of
service and either fixed dollar amounts per year of service or employee
compensation during the later years of employment. The assets of the plans
consist principally of cash equivalents, corporate and government bonds,
and common and preferred stocks. The Company's policy is to fund only
amounts required to satisfy minimum legal requirements. Net periodic
pension expense for the defined benefit plans was as follows:
(In thousands) 1995 1994 1993
Service cost-benefits earned
during the period $ 846 $ 765 $ 634
Interest cost on projected
benefit obligation 1,912 1,743 1,634
Actual (return) loss on assets (4,015) 527 (1,623)
Amortization of net gain and deferral 2,370 (2,487) (292)
Net periodic pension expense $ 1,113 $ 548 $ 353
Pension expense was determined using a discount rate of 8% in 1995 and
1994 and 8.5% in 1993, an expected long-term rate of return on plan assets
of 9% and a rate of increase in compensation levels of 6%.
The funded status of the defined benefit plans at October 31, 1995 and
1994 was as follows:
1995 1994
----------------------- ---------
Accumulated Accumulated
Assets Exceed Benefits Benefits
Accumulated Exceed Exceed
(In thousands) Benefits Assets Assets
Actuarial present value of benefit obligations:
Vested benefit obligation $14,863 $ 7,715 $21,187
Nonvested benefit obligation 424 133 1,236
$15,287 7,848 $22,423
Actuarial present value of
projected benefit obligations $18,046 $ 7,848 $24,897
Plan assets at market value 18,248 5,016 20,171
Plan assets in excess of (less than)
projected benefit obligation 202 (2,832) (4,726)
Unrecognized net (asset) obligation (1,765) (115) (2,161)
Unrecognized net losses and other 2,926 2,634 8,386
Prepaid (accrued) pension expense $ 1,363 $ (313) $ 1,499
Retiree Health Care and Life Insurance Benefits:
The Company provides health care and life insurance benefits to
certain eligible retired employees, but has discontinued retiree health
benefits for substantially all employees who retire after January 1, 1993.
The plans are unfunded. Benefits and cost-sharing provisions vary by
location. Generally, the medical plans pay a stated percentage of most
medical expenses, reduced for any deductible and payments made by
government programs or other group coverage. The cost of providing most of
these benefits is shared with the retirees. The cost sharing limits the
company's future retiree medical cost increases to the rate of inflation,
as measured by the Consumer Price Index.
Net periodic postretirement benefit cost for 1995, 1994 and 1993
include the following components:
(In thousands) 1995 1994 1993
Service cost - benefits earned during the period $ 26 $ 24 $ 23
Interest cost on projected benefit obligations 512 509 504
Net periodic postretirement benefit cost $ 538 $ 533 $ 527
The status of the plans, reconciled to the accrued postretirement
benefits other than pensions recognized in the company's balance sheet at
October 31, 1995 and 1994, was as follows:
(In thousands) 1995 1994
Accumulated postretirement benefit obligation:
Retirees $5,482 $5,542
Fully eligible participants 455 395
Other active participants 520 482
Total accumulated postretirement benefit obligations 6,457 6,419
Unrecognized net loss from changes in assumptions (86) (86)
Accrued postretirement benefit cost $6,371 $6,333
The discount rate used in determining the APBO was 8%. The assumed
health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.7% in 1995 for medical costs and
13.7% in 1995 for prescription drugs, with both declining over the next 9
years to 7%. If the health care cost trend rate assumptions were increased
by 1%, the APBO at October 31, 1995, would increase by 5.3% and the net
periodic postretirement benefit cost would increase by 5.4%.
Effective November 1, 1992, the Company adopted FAS 106, " Employers
Accounting for Postretirement Benefits Other than Pensions." The Company
recognized the change in accounting principle on the immediate recognition
basis. The cumulative effect of adopting FAS 106 was an initial
accumulated postretirement benefit obligation of $6,194,000, a long-term
deferred tax asset of $2,106,000 and a reduction in net income of
$4,088,000 ($0.89 per share).
H. STOCK OPTION PLANS:
The Company has two stock option plans, a 1982 Plan and a 1993 Plan.
The 1982 Plan expired in 1993 except as to options then outstanding. Under
the 1993 Management Stock Incentive Plan, 200,000 common stock options may
be granted to key employees. Option prices must not be less than the fair
market value of the Company's stock on the date granted. Options are
exercisable over 10 years and vest at a rate of 25% each year, commencing
in the second year, and expire upon termination of employment or one year
following death or retirement. No charge is made against income when
options are exercised. Common stock options outstanding are as follows:
Shares Option Price
Outstanding at October 31, 1992 96,825 $4.50 - $ 9.05
Granted 19,744 9.50
Exercised (58,209) 4.50 - 9.05
Outstanding at October 31, 1993 58,360 4.50 - 9.50
Granted 42,000 11.75
Exercised (12,913) 4.50 - 9.50
Expired (15,573) 4.50 - 9.50
Outstanding at October 31, 1994 71,874 4.50 - 11.75
Granted 108,500 7.31 - 7.63
Exercised (1,800) 4.50 - 5.92
Expired (25,299) 4.50 - 11.75
Outstanding at October 31, 1995 153,275 $4.50 - $11.75
I. SEGMENT REPORTING:
The Company reports its activities under two industry segments -
Precision Parts and Special Machines. The Precision Parts segment consists
of automotive components and farm equipment parts machined in dedicated
manufacturing cells, molded rubber and plastic parts, and non-symmetrical
machine contoured parts produced and sold in small quantities. Special
machines consist of a range of standard individual machines, as well as
custom designed machines on a made-to-order basis and sold either
individually or incorporated into complete systems. Information by
industry segment is summarized below:
Precision Special
(In thousands) Parts Machines Corporate Consolidated
Sales to unaffiliated customers (1,2)
1995 $ 59,547 $ 57,083 $ 116,630
1994 46,916 65,070 111,986
1993 36,155 78,933 115,088
Operating income (loss)
1995 $ 4,772 $ (241) $ (1,673) $ 2,858
1994 3,823 (5,945) (1,235) (3,357)
1993 2,151 7,064 (1,489) 7,726
Identifiable assets
1995 $ 38,086 $ 30,857 $ 8,610 $ 77,553
1994 35,121 39,774 9,941 84,836
1993 20,770 45,553 6,982 73,305
Capital expenditures
1995 $ 4,160 $ 566 $ 25 $ 4,751
1994 3,607 1,254 95 4,956
1993 4,636 992 11 5,639
Depreciation and amortization
1995 $ 2,364 $ 893 $ 33 $ 3,290
1994 1,747 872 35 2,654
1993 1,108 843 44 1,995
(1) Sales to three automotive manufacturers were approximately $45 million,
$13 million, and $8 million in 1995, $44 million, $14 million, and $6
million in 1994, and $56 million, $16 million, and $8 million in 1993.
(2) Export sales, principally to Mexico and Canada, amounted to $12 million
in 1995, $18 million in 1994 and $16 million in 1993.
J. CONTINGENT LIABILITIES:
One of Newcor's Special Machines divisions has been identified by the
Environmental Protection Agency as a potentially responsible party at a
waste disposal site. The division's waste and proportionate share were
minimal. Accordingly, in the opinion of management, any potential cost
incurred by Newcor will not have a significant effect on the Company's
results of operations, liquidity or financial position.
Various lawsuits arising during the normal course of business are
pending against the Company. In the opinion of management, the ultimate
liability, if any, resulting from these matters will have no significant
effect on the Company's results of operations, liquidity or financial
position.
K. CLOSURE OF OPERATIONS IN ROCHESTER, MICHIGAN:
In fiscal 1993, the Company announced the closing of its manufacturing
facility in Rochester, Michigan. A one-time charge of $560,000 ($0.12 per
share) was recorded in the fourth quarter of 1993 to accrue for anticipated
losses on the disposition of plant equipment, employee termination costs
and various other shutdown costs. The majority of these costs have been
disbursed as of October 31, 1995.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Newcor, Inc.
We have audited the consolidated balance sheets of Newcor, Inc. and
Subsidiaries as of October 31, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, and cash flows for the years
ended October 31, 1995, 1994, and 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Newcor, Inc. and Subsidiaries as of October 31, 1995, and 1994 and the
consolidated results of operations and cash flows for the years ended
October 31, 1995, 1994, and 1993, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
December 7, 1995, except as to the information
presented in the first paragraph of Note B,
for which the date is January 2, 1996.
FINANCIAL SUMMARY
(In thousands, except
per share amounts) 1995 1994 1993 1992 1991
Operating Results
Precision Parts:
Sales $ 59,547 $ 46,916 $ 36,155 $ 27,963 $ 27,067
Operating income 4,772 3,823 2,151 2,040 2,528
Special Machines:
Sales 57,083 65,070 78,933 62,601 62,023
Operating income (loss) (241) (5,945) 7,064 5,982 6,175
Consolidated:
Sales 116,630 111,986 115,088 90,564 89,090
Gross profit 18,326 12,817 23,998 21,211 19,865
Interest expense 1,910 1,546 877 716 2,017
Income (loss) before cumulative
effect of changes in
accounting principles 881 (2,202) 5,364 4,529 3,876
Per share income (loss)
before cumulative effect
of changes in
accounting principles 0.19 (0.47) 1.16 0.98 0.80
Net income (loss) 881 (2,202) 884 4,529 3,876
Net income (loss)
per share 0.19 (0.47) 0.19 0.98 0.80
Dividends per share 0.20 0.20 0.20 0.16 0.13
Financial Position
Working capital $ 26,575 $ 32,186 $ 25,309 $ 33,752 $ 16,832
Current ratio 2.63 2.66 2.05 2.70 2.37
Net property, plant
and equipment 24,518 22,793 17,632 14,100 11,456
Total assets 77,553 84,836 73,305 75,702 47,050
Total debt 26,200 31,500 12,000 24,300 6,500
Shareholders' equity 25,909 25,157 28,440 28,560 26,623
Debt as percent of
total capitalization 50.3% 55.6% 29.7% 46.0% 19.6%
Other Financial Data
Shareholders' equity
per share $ 5.54 $ 5.38 $ 6.13 $ 6.23 $ 5.47
New orders 111,000 116,600 113,500 94,800 78,900
Order backlog at
year end 49,000 54,600 50,000 51,600 44,600
Depreciation and
amortization 3,290 2,654 1,995 1,905 1,865
Capital expenditures 4,751 4,956 5,639 2,887 1,692
Weighted average
shares outstanding 4,679 4,662 4,607 4,644 4,864
Quarterly Financial Information (Unaudited)
(In thousands, except per share amounts)
Gross Net Earnings
Sales Profit Income Per Share
1995:
First quarter (January 31) $ 27,923 $ 4,572 $ 330 $ 0.07
Second quarter (April 30) 29,489 4,069 (291) (0.06)
Third quarter (July 31) 29,118 3,973 103 0.02
Fourth quarter (October 31) 30,100 5,712 739 0.16
$116,630 $ 18,326 $ 881 $ 0.19
1994:
First quarter (January 31) $ 23,412 $ 2,556 $ (699) $ (0.15)
Second quarter (April 30) 27,471 2,421 (1,136) (0.24)
Third quarter (July 31) 29,346 3,666 (457) (0.10)
Fourth quarter (October 31) 31,757 4,174 90 0.02
$111,986 $ 12,817 $(2,202) $ (0.47)
The common stock of Newcor, Inc., is traded on the NASDAQ under the symbol
" NEWC."
NEWCOR, INC.
Exhibit 21 to Form 10-K
For the Year Ended October 31, 1995
List of Subsidiaries of the Registrant
Percentage
of Outstanding
Jurisdiction of Securities
Name of Subsidiary Incorporation Owned by Parent
- ----------------------- --------------- ---------------
Rochester Gear, Inc. Michigan 100 %
Eonic Inc. Michigan 100 %
Newcor Machine Tool, Inc. Michigan 100 %
Newcor Fraser, Inc. Michigan 100 %
Newcor Foreign Sales Corporation Michigan 100 %
NEWCOR, INC.
Exhibit 23 to Form 10-K
For the Year Ended October 31, 1995
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement
of Newcor, Inc. on Form S-8 dated December 15, 1993 of our report dated
December 7, 1995, except for the first paragraph of Note B for which the
date is January 2, 1996, on our audits of the consolidated financial
statements of Newcor, Inc. as of October 31, 1995 and 1994, and for the
years ended October 31, 1995, 1994, and 1993, which report is incorporated
by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand, L.L.P.
Coopers & Lybrand, L.L.P.
Detroit, Michigan
January 25, 1996
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